On 1 September 2024, the rate of general VAT in Finland rose from 24% to 25.5%. In this article, we will explore what this change means for local and foreign-owned businesses in Finland.
Who and What Does the Finland VAT Rise Affect?
The September 2024 VAT rise only affects goods and services that were previously taxed at the general rate of 24%. Therefore, the VAT rate rise has no impact on goods and services sold with reduced VAT in Finland (14% or 10%), like physical exercise services or hotel accommodation.
Will VAT be Raised for Reduced Rate Goods and Services?
Discussions are underway about potential changes to reduced rate VAT in Finland.
It has been proposed that:
- Many of the goods and services currently sold with 10% VAT could be moved to the 14% Finland VAT rate.
- Chocolate and candy may be moved from the reduced 14% VAT rate to the general 25.5% VAT rate.
However, it is important to note that nothing has been finalised, and none of these changes would apply until 2025 at the earliest.
When Should a Business Apply the new General VAT Rate?
- Goods
In most cases, the VAT rate payable on a sale of goods is determined by the date of delivery. Therefore, if goods were handed over to the buyer on or before 31 August 2024, the VAT rate is 24% (regardless of when the buyer pays). Conversely, if goods were delivered after 31 August 2024, the new 25.5% VAT rate is applicable.
- Instalment Contracts
In an instalment contract (or hire-purchase), a buyer pays for an item in several smaller amounts over a period of time. In this case, the date of the item’s delivery to the buyer should still be used to determine the correct VAT rate (as explained above).
- Services
In general, the VAT rate applicable when a service was provided should be used, even if payment occurs after 1 September 2024. If the service was unfinished when the new VAT rate came into effect (i.e., the service began before the change came into place, but was finished afterwards), the new VAT rate of 25.5% should be applied.
Advance Payments
In cases where a buyer has fully paid for a service in advance before the Finland VAT rate was increased, the 24% VAT rate is applicable. In this situation, the service is deemed as ‘paid’ when the money has been received by and is available to the seller.
- Goods or Services Provided on a Continuous Basis
Some goods and services are paid for based on the passing of time (not to be confused with payment in instalments for a single good or construction service). The VAT rate applicable to a continuous supply payment should be based on the last day of the contract (considered the date of ‘supply’), even if payments began before the Finland VAT rate rise.
Example: Rental Properties
A rental property contract may cover the period of 1 June 2024 – 31 May 2025. In this scenario, the new VAT rate of 25.5% should be applied for the whole period, as the final day falls after 1 September 2024.
What if Rent was Paid Upfront?
If a full payment was made for the whole term before 1 September 2024, the service would be subject to 24% VAT in Finland.
What About Rent Charged by the Month?
If a property owner charges rent month by month and the tenant is not contracted to stay in the property for a longer period (6 or 12 months, for example), then the period determining remittance would be the month. In this case, rent for August 2024 would have been subject to 24% VAT, but rent for September onwards would be subject to 25.5%.
How Does the new Finland VAT Rate Affect Businesses Buying Goods and Services?
- When Buying Goods from an EU Country
When purchasing goods from a seller in the EU (intra-community acquisitions), the correct month for VAT reporting is usually the month after you acquired the goods (when they were delivered). If the correct VAT reporting month for your purchase is September 2024 or later, you must apply the new VAT rate of 25.5% when filing and paying VAT.
The main exception to this rule is if the final invoice is dated within the month when the goods were delivered. In this case, the intra-community acquisition must be reported within that month. It is also important to note that the VAT reporting month remains the same, even if part of the price is paid in advance.
- When Purchasing Services From a Foreign Business
In all EU countries, the reverse charge mechanism means buyers pay VAT on sales, not sellers. This mechanism is applied when a business sells a service governed by the VAT general provision to another business in a different EU member state. In Finland, reverse charges also apply to certain other services not governed by the VAT general provision.
As a Finnish buyer liable for a reverse charge, it is important to know which Finland VAT rate is correct. For services provided on 1 September 2024 or later, the VAT rate is 25.5%. For any services provided earlier than this, the VAT rate payable is 24%.
- When Buying Imported Goods
For goods imported into Finland, the date of VAT liability is the date when customs acknowledge receipt of the import declaration. If this date is 1 September 2024 or later, the new VAT rate (25.5%) is applicable. The calendar month for reporting VAT on imports to the Tax Administration is the month in which customs issued a decision on customs clearance.
- When Receiving an Import into Mainland Finland From Åland
The VAT rate applicable to an import from Åland to mainland Finland is determined by the date on the decision on the first customs clearance of the goods. If this date is after September 1, 2024, the VAT rate applied should be 25.5%. However, this should be reported on the VAT return for the tax period when the customs decision was issued.
Master VAT in Finland With Leinonen
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